University of California, Berkeley Corruption to Good Governance: Are There Lessons from Abroad? Ken Taymor, Executive Director Berkeley Center for Law, Business & the Economy July 9, 201 1
Overview Introduction to US Foreign Corrupt Practices Act Problem Scenario: Facilitation Payments Problem Scenario: "Foreign Official Problem Scenario: Agent or Independent Contractor 2
University of California, Berkeley US Foreign Corrupt Practices Act 3
FCPA Intro 1977 U.S. Statute Origins in "Watergate" scandal and resignation of President Nixon >00 US companies Bribed foreign officials to obtain business Made illegal campaign contributions Subsequent multinational conventions OECD Convention on Combatting Bribery of Foreign Officials in International Business Transactions UN Convention Against Corruption Domestic Enforcement: Honest Services Catch all anti-bribery statute US Sup. Ct narrowed application primarily to government officials
FCPA Key Elements Anti-bribery: civil and criminal penalties Mandates transparency -- Books and record keeping System of internal controls Broad Application US Companies and individuals Many non-us entities listed on US securities exchanges Directors, officers, shareholders, employees, agents Non-US nationals in territorial jurisdiction of US
FCPA Anti-bribery provisions Giving anything of value To "Foreign Official" Intending to influence FO To misuse his position To obtain or retain business Obtain / retain contract Circumvent import / export rules Special regulatory treatment Avoid taxes Influence litigation outcomes?burden a competitor 5
FCPA Record Keeping and Internal Controls Prohibits "off the books" payments Corporate "slush fund" common activity pre-fcpa Promoting transparency Facilitates internal discipline Encourages self-policing Expands potential penalties and plaintiffs Expenditure not accounted for as a bribe becomes securities law violation Ties in with FCPA enforcement scheme Incent companies to develop effective compliance programs Self-reporting (voluntary confession) gains leniency Facilitates evidence gathering in government investigations
FCPA Definitional Challenge - Corrupt payment or not? Boundary problem: legitimate or corrupt payment? Major enforcement challenge Unclear mandates impede businesses changing internal culture Two Affirmative Defenses available in FCPA Local law defense Payment must be permissible de jure, not merely de facto Reasonable and bona fide expenditure defense Payments to promote, demonstrate, explain products
FCPA Enforcement Strategies Objective: change business culture Domestic operations International business transactions Government prosecutions Two pronged: Dept of Justice & SEC Follow-on private investor lawsuits for lost shareholder value Expense, time, deterrence unproven Whistle-blower incentives Leniency for self-reporting violations Guidelines for enforcement and acceptable practice Can benefit companies who want to comply
University of California, Berkeley Problem Scenarios 5
Facilitation Payment or Bribe? Clerk requests payments to process applications Permits to operate a plant Approvals for utility connections Police chief requests payments for patrols Are these payments only expediting the inevitable Even if "non-discretionary" timing matters Does presence / absence of competitors matter Does this encourage entrenched "low level" corruption
Facilitation ("Grease") Payments Payments for routine, non-discretionary acts Defined in terms of purpose of payment Example: issue permits, providing police protection, utility services Not payments to obtain business contract Congress struggled with definition Initial focus: "foreign official" excluded persons who performed only ministerial / clerical acts Replaced debate over what is ministerial / clerical acts Debate over whether the payment merely speeds an inevitable action Not a bona fide business payment May be an illegal bribe under local law
Foreign Official as SOE Employee Core problem: distinguishing payments with: "corrupt" objective from legitimate compensation for business service Is recipient being paid because of: Status and power as foreign official; or Specialized knowledge and skill, independent of political power US FCPA assumes private enterprise model State Owned Enterprises challenge that model Molecular geneticist at public university Specialized knowledge valuable to US biotech firm Participation as adviser on Scientific Advisory Board To support petition for drug approval
Agent or Independent Contractor? Core problem: distinguishing relationships with: Agents acting under direction and control of foreign parent; from Independent local business services providers Building local capacity a valuable national goal Risk / Opportunity for foreign business Loose enforcement: local entity provides immunity Strict enforcement: local entity kept under tight control